Shariah indices continue to outperform conventional indices

KUALA LUMPUR: Shariah indices have outperformed conventional indices in Bursa Malaysia for the past two years with the technology and healthcare sectors emerging as the top-performing sectors in 2020, said CGS-CIMB Securities Sdn Bhd.

In a research note, it said the sustained outperformance of the shariah indexes over conventional stock indexes has led to more interest in shariahbased investments with the total Islamic assets under management (AUM) at RM217 billion as at end-December 2020.

The total Islamic AUM for the Malaysian fund management industry grew from 22 per cent of total assets in 2017 to 24 per cent as at December 2020.

The research house said the Islamic unit trust size expanded at a faster pace, accounting for 24.7 per cent of the total net asset value of unit trust in December 2020 versus 18.2 per cent in 2017.

There are four shariah indices that track the performance of shariah compliant securities in Bursa Malaysia, namely the FTSE Bursa Malaysia Hijrah Shariah Index (FBM Hijrah), FTSE Bursa Malaysia EMAS Shariah Index (FBM Emas Shariah), FTSE Bursa Malaysia Small Cap Shariah Index (FBM Small Cap Shariah) and FTSE Bursa Malaysia Mids Cap Shariah Index (FBM Mids Shariah).

In comparing the performances

The energy, property and real estate investment trust (REIT) sectors were the worst-performing sectors in 2020.

CGS-CIMB Securities

of FBM KLCI and FBM Hijrah index, it said the FBM Hijrah Shariah Index outperformed the conventional FBM KLCI index in seven out of the past 10 years (2011-2020).

“The energy, property and real estate investment trust (REIT) sectors were the worstperforming sectors in 2020.

“Shariah indices tend to outperform KLCI or FBM Emas indices when banks underperform in the consumer, healthcare, utilities and telecom sectors,” it said

A closer analysis revealed that one of the key determinants of the relative performance of KLCI versus Hijrah Shariah Index is the banking sector’s performance, it noted.

“This is because six out of the 30 constituents in the KLCI index are banks that are nonshariah compliant which formed about 32 per cent of KLCI’s total weightage as at Jan 29, 2021.

“As at Jan 29, 2021, the key heavyweights in the Hijrah Shariah index were the healthcare (26 per cent of total index weight), food and beverage (18.92 per cent), telecommunications (17.59 pr cent) and utilities (13.92 per cent) sectors.

“The top three companies with the highest weightage in FBM Hijrah are Tenaga Nasional Bhd, Top Glove Corporation Bhd and Petronas Chemicals Group Bhd,” it said.

Moving forward, CGS-CIMB said a successful nationwide and global vaccine deployment would boost market sentiment and increase the likelihood of borders reopening.

However, any hiccups or delays in the rollout of vaccines, coupled with a surge in new Covid-19 cases or death rate, may lead to profit-taking in the market due to concerns that lockdown measures may be protracted, leading to higher earnings risks, it viewed.

“We think there could be delays as pharmaceutical and vaccine production involves complex coordination, such as product development, manufacturing, packaging, storage, distribution and regulatory review, with delays potentially taking place at each stage.

“As such, we believe the market could stay volatile in 2021,” it said.